Ratings Sl. Instrument/Facility No. 1. Long Term Fund Based Limits 2. Short Term Non-Fund Based Limits 3. Working Capital Demand Loan Press Release GMR Energy Trading Limited April 16, 2019 Amount Rating Assigned* (Rs. Crores) 10.00 IVR BBB- (SO)/Stable Outlook (IVR Triple B Minus [Structured Obligation] with Stable Outlook) 25.00 IVR A3 (SO)/ (IVR A Three [Structured Obligation]) 50.00 IVR A3 (SO)/ (IVR A Three [Structured Obligation]) Total 85.00 *SO rating fully backed by an unconditional and irrevocable guarantee of GMR Infrastructure Limited Details of Facilities are in Annexure 1 Detailed Rationale The rating derives strength from support from GMR group, healthy growth in operation, experienced management, long track record of operations and established relationship with stakeholders. The rating however is constrained by low profitability margins, high gearing and weak debt protection metrics, exposure to counterparty risks, capped margins in power trading and stressed financial risk profile of the group holding company. Ability to maintain margins in competitive environment, efficient management of counterparty risk, ability to generate cash flows to pare debt level and financial performance of the guarantor are the key rating sensitivities. List of key rating drivers with detailed description Key Rating Strengths Support from GMR group GETL is a subsidiary of GMR Infrastructure Limited (GIL), holding company for GMR group. By virtue of being part of GMR group (having a diverse business profile including energy), the company has the advantage of operational synergies. Also, unconditional and irrevocable www. infomerics.com 1
corporate guarantee given by GIL to the bank facilities of the company indicates support from the GMR group. Healthy growth in operation GETL has witnessed an increase in scale of operation over the last three years. The company reported a healthy growth in operation with increase of about 24% in turnover in FY18 due to increase in the average market clearing price in FY18 over the last year. Experienced management The day to day operation of the company is managed by professionals having rich industry experience. The members in the Board (including two independent directors) are highly qualified & experienced, adding credence & professionalism in the governance of the company. Long track record of operations and established relationship with stakeholders GETL has been involved in the power trading business for more than a decade. Over the years, the company has established relationships with various market players. The company has maintained healthy relationship with state utilities and other discoms. Key Rating Weakness Low profitability margins The profitability margins of the company are low. Although the EBITDA margin marginally increased in FY18, it continues to remain on the lower side. Further, the PAT margin of the company continues to decline and was low in FY18 on account of higher interest cost. High gearing and weak debt protection metrics The overall gearing ratio was high as on March 31, 2018 on account of long term borrowing in FY18. Long term debt to equity ratio and other debt coverage metrics of the company were weak as on March 31, 2018. The interest coverage ratio stood at 1.02x for FY18 (FY17-1.37x). www. infomerics.com 2
Exposure to counterparty risks GETL is susceptible to the credit risk profiles of its customers, primarily State Power Utilities (SPUs). The credit profile of most of the SPUs is weak to moderate. The company tries to mitigate counterparty risk by diversifying revenue profile across multiple buyers. Seasonal reversal (excess/deficit of power) of buy-and-sell positions of SPUs acts as a natural hedge to some extent. However, risk of delays and defaults in payments is a key rating sensitivity factor. Capped margins in power trading Central Electricity Regulation Commission (CERC) is the regulator of power sector in India and the trading of power is a highly regularized business. CERC has capped short term trading margins at Rs.0.07 per kwh (for energy cost greater than Rs.3 per kwh) and Rs.0.04 per kwh (for energy cost at Rs.3 per kwh or lesser). The presence of such caps limits the trading margins of entities involved in power trading. Stressed financial risk profile of the group holding company GIL (on a consolidated basis) continues to have a stressed financial risk profile reflected by low profitability and weak debt coverage metrics. The company has reported book loss in the last three financial years, primarily driven by high interest cost (on account of high debt burden) and share of loss in associates resulting in low debt service coverage indicators. Analytical Approach & Applicable Criteria Consolidated Rating Methodology for Infrastructure companies Financial Ratios and Interpretation (Non-Financial Sector) Liquidity The company is earning a modest level GCA and the same is expected to increase with increase in scale of operation and level of margin, while the long term debt is likely to reduce indicating lower debt servicing obligations. These factors indicate a moderate degree of liquidity support to the company in meeting its debt obligations. Further the support extended by the group acts as liquidity bulwark for the company. www. infomerics.com 3
About the Company GMR Energy Trading Limited (GETL) is an unlisted public limited company incorporated in January 2008 with the objectives of trading in electricity across all segments of Indian power market. GETL is a subsidiary of GMR Infrastructure Limited (GIL), which holds ~67.86% shares of the company. The company is a category-1 power trading licensee issued by Central Electricity Regulation Commission which permits unlimited trading of power under the Electricity Act, 2003. The operation of the company is managed by professionals having rich industry experience. GETL is an active member of both power exchanges Indian Energy Exchange (IEX) and Power Exchange India Ltd. (PXIL). As on date the company has traded more than 5000 million units (MUs) power and 144,725 Renewable Energy Certificates (RECs). The company has more than 140 clients on power exchanges for sale/purchase of power. Financials (Standalone) (Rs. crores) For the year ended* / As On 31-03-2017 31-03-2018 (Audited) (Audited) Total Operating Income 1419.93 1759.77 EBITDA 23.83 30.12 PAT 4.43 2.47 Total Debt 133.54 441.46 Tangible Networth 63.03 65.51 EBITDA Margin (%) 1.68 1.71 PAT Margin (%) 0.31 0.14 Overall Gearing Ratio (x) 2.12 6.74 * Classification as per Infomerics' standards Status of non-cooperation with previous CRA: N.A Any other information: N.A Rating History for last three years: Sl. No. Name Instrument/ Facilities of 1. Fund Based Limit - CC Current Rating (Year 2019-20) Type Amount Rating outstanding (Rs. crore) Long Term 10.00 IVR BBB- (SO)/Stable Outlook Rating History for the past 3 years Date(s) & Date(s) & Date(s) & Rating(s) Rating(s) Rating(s) assigned in assigned in assigned in 2018-19 2017-18 2016-17 -- -- -- www. infomerics.com 4
2. Non Fund Based Short 25.00 IVR A3 (SO) -- -- -- Limit LC/BG Term 3. Working Capital Short 50.00 IVR A3 (SO) -- Demand Loan Term -- -- *SO rating fully backed by an unconditional and irrevocable guarantee of GMR Infrastructure Limited Note on complexity levels of the rated instrument: Infomerics has classified instruments rated by it on the basis of complexity and a note thereon is available at www.infomerics.com. Name and Contact Details of the Rating Analyst: Name: Mr. Abhilash Dash Tel: (022) 62396023 Email: abdash@infomerics.com About Infomerics: Infomerics commenced rating & grading operations in April 2015 after having spent over 25 years in various segments of financial services. Infomerics is registered with the Securities and Exchange Board of India (SEBI) and accredited by Reserve Bank of India. Company s long experience in varied spectrum of financial services is helping it to fine tune its product offerings to best suit the market. Disclaimer: Infomerics ratings are based on information provided by the issuer on an as is where is basis. Infomerics credit ratings are an opinion on the credit risk of the issue / issuer and not a recommendation to buy, hold or sell securities. Infomerics reserves the right to change, suspend or withdraw the credit ratings at any point in time. Infomerics ratings are opinions on financial statements based on information provided by the management and information obtained from sources believed by it to be accurate and reliable. The credit quality ratings are not recommendations to sanction, renew, disburse or recall the concerned bank facilities or to buy, sell or hold any security. We, however, do not guarantee the accuracy, adequacy or completeness of any information which we accepted and presumed to be free from misstatement, whether due to error or fraud. We are not responsible for any errors or omissions or for the results obtained from the use of such information. Most entities whose bank facilities/instruments are rated by us have paid a credit rating fee, based on the amount and type of bank facilities/instruments. In case of partnership/proprietary concerns/association of Persons (AOPs), the rating assigned by Infomerics is based on the capital deployed by the partners/proprietor/ AOPs and the financial strength of the firm at present. The rating may undergo change in case of withdrawal of capital or the unsecured loans brought in by the partners/proprietor/ AOPs in addition to the financial performance and other relevant factors. www. infomerics.com 5
Annexure 1: Details of Facilities Name of Facility Date of Issuance Coupon Rate/ IRR Maturity Date Size of Facility (Rs. Crore) Rating Assigned/ Outlook Long Term Fund Based Limits Cash Credit Short Term Non Fund Based Limits LC/BG Working Capital Demand Loan -- -- -- 10.00 IVR BBB- (SO)/Stable Outlook -- -- -- 25.00 IVR A3 (SO) -- -- -- 50.00 IVR A3 (SO) www. infomerics.com 6